Economic Sector

Last updated: Monday, November 19, 2018

Facilitating Private Business Development

Posted: Saturday, November 18, 2017

The private sector is the most important player in the modern market economy. Although the size of the private sector may vary, it is confirmed that without the private sector there would be no market economy in its own right. The key issue is how to create favourable conditions for private business development.

According to Mr Phan Duc Hieu, Vice President of Central Institute for Economic Management (CIEM), there are three barriers to enterprises nowadays: burdens of costs, time to comply with legal regulations, legal risks and security in business. Another intrinsic business issue and a profound source of all Asian financial and economic crises is the weakness of corporate governance. This determines the long-term development of the enterprises.

Mr Hieu shared that all the resolutions of the Government: Resolution 10/NQ-TW on private economic development, three resolutions on improving the business investment environment including Resolution 19; Resolution 35/NQ-CP on business support and development up to 2020 and Resolution 98/NQ-CP on the action plan for the implementation of the central government's decree on private economic development have only focused on reducing the time and costs for enterprises. But the risks for businesses are rarely mentioned, especially the unpredictability in the implementation of administrative procedures leads to increased costs for businesses, or even ending up their operation.

Regarding the security of property rights, according to Mr Hieu, considering the level of security of property rights under evaluation of an international organisation for 128 countries, Vietnam stands at 88th, at low level. The level of copyright protection is also alarming. Protection of invention patents is also limited.

Dr Vo Tri Thanh, an economic expert, said that the issue of property rights had been mentioned regularly. Property rights are greater than ownership because, in broad sense, there are many issues in Vietnam, such as property associated with land, competition, access to resources and business environment. Land ownership must be prioritised for consideration and, if necessary, adjusted appropriately. Then, it comes to a matter of intellectual property rights.

In addition, with many efforts, Vietnam has basically dealt with a problem that is entering the market, but the regulations on competition, enforcement of business contracts, and withdrawal from the market have still been inadequate. Therefore, Vietnam enterprises are struggling to be competitive, hard to create motivation.

Moreover, according to Dr Vu Dinh Anh, a finance and banking expert, lack of funds is the most talked topic in the private sector. This is also a common phenomenon in most developing and transitional countries. Therefore, strong development of joint stock companies is the solution that can increase the size of the enterprise right from the start. Furthermore, the form of a joint stock company will facilitate the publicity of finance, one of the weaknesses that is preventing the private sector from accessing bank credit.

In addition to the policies and financial mechanisms that have made the form of the joint stock company become the first choice of entrepreneurs, the development of non-bank financial markets, especially the decentralised stock market play a decisive role.

Besides, the legitimacy and development of the real estate market is important not only to expanding bank credit to the private sector but also to improve the internal resources of the sector.

Taxation is the second most important issue, and most private sector businesses are talking about it. Most of the comments suggest that the current tax is too high, so they require tax incentives, tax exemptions, and tax relief, and as a result, the tax system is too complex with unfair incentives.

Mr Anh said that it would be necessary to thoroughly eliminate all tax preferences, including incentives according to criteria of economic composition, industry or geographical conditions, because it is easy to generate negative issues and have difficulties in management while the conditions of people, organisations and facilities are still limited.

In the short term, according to Mr Anh, general tax incentives should be only maintained for newly established companies, and other tax incentives can be replaced in the form of financial support from the State based on socio-economic development objectives and financial capacity of the State, and the support shall end when it deems unnecessary on the basis of focusing state financial management efforts on this support.

In addition to import and export taxes, the two most important taxes for the private sector are corporate income tax (CIT) and value added tax (VAT) which need to be improved towards reducing and unifying tax rates. Mr Anh said that the VAT rate of 10 per cent at the same time, a CIP tax rate of 15 per cent or 20 per cent should be applied.

Finance plays an increasingly important role in the development of the private economy. Financial issues has arisen more and become more complicated and it is not possible to expect synchronous solutions immediately and wait for a complete financial solution to implement but it is necessary to implement mechanisms and policies that can resolve the financial problems of the private economy with the view of creating the highest possible financial advantage for the impetus of national economy.